Pelosi Says Value Added Tax is “On the Table”

Posted on October 6, 2009

From The Hill:

In an interview with Charlie Rose, Speaker of the House  Nancy Pelosi said that it would be fair to look at the possibility of implementing a “Value Added Tax” to address the country’s financial woes.

I’m not an economist, but from my understanding, a “value added tax”, or national sales tax, is a tax on manufacturers for the extra worth of a material resouce they’ve purchased to use in the production of their product.   This tax is imposed along every step in the chain of manufacturers in the production of an item from beginning to end.

For example, when a manufacturer buys steel and makes it into a washer, the manufacturer has increased the worth, or added value, to that piece of steel.  When the next manufacturer purchases the washer from the first manufacturer, the second manufacturer must pay an extra tax on the increased worth, or value, of that piece of steel that was made into a washer.  If the washer is then put into a brake assembly,  it has added value again, and the company that buys the brake assembly to put into a vehicle will pay an extra tax on the greater worth of that washer.  This continues until the final product hits the retail market.  Each step along the way, manufacturers are charged an extra tax for the materials they use.

The way manufacturers deal with this added tax is, of course, by rolling their cost into the cost of their product.   Thus increasing the cost of the product every step along the way and, in the end, culminating in a larger cost to the retail consumer.  So what the consumer sees is a higher price, not necessarily a tax. 

This type of tax on manufacturers is attractive to the government because it is not only another source of revenue, but it also is a hidden tax on the consumer.  It is a tax that isn’t seen, as opposed to an income tax being taken from a paycheck, or a sales tax being added at the cash register when purchasing goods.

Which brings up another point.  Not only does this tax add monies to the federal government coffers, it adds them to state and local governments as well.  Because, even if the local government don’t raise their percentage of sales tax, they take the same percentage from a higher priced item, thus adding money to their own coffers as well.

I probably haven’t explained this clearly enough, but the important thing to note here is that this means the prices of good are going to increase, and possibly increase substantially.

In her interview, Speaker Pelosi stated that any changes to the tax code would not result in a tax increase to middle-class America.  But the “value added tax”  it isn’t a direct tax increase on Americans.  Instead, the taxes are imposed on manufacturers who roll them into the price of their goods.  So Speaker Pelosi can claim it isn’t a tax  increase on the middle-class, but that is who ends up paying for the tax in the end.

This continual money grab by politicians has got to stop.  Congress continues to treat the American tax payer as an ATM whose money can be taken in ever increasing amounts in order to finance their own pet projects.  In this day and age when our unemployment rate is 9.8% (real unemployment is 17% if you include those who’ve given up or taken part-time work in lieu of full-time) and citizens are barely getting by, we cannot afford to pay higher taxes.   This will lower our standard of living and we will no longer be able to afford the same things we can now.

We must tell Congress to become  fiscally responsible  and keep their hands out of our wallets.  Ordinary Americans are having to tighten their budgets and stop buying frivolous items; Congress must do this as well.   Additional taxes will do nothing but hurt middle-class America.

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Posted in: Congress, Economy